Photo: Bloomberg, Illustration by Tom Hall/Bloomberg Business

ECB Hands 74 Billion Euros to Banks as Lending Shows Upturn

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The European Central Bank handed 73.8 billion euros ($84.2 billion) to euro-area banks in the fourth round of a program designed to boost their lending to the real economy.

The take-up compares with a median estimate of 75 billion euros by analysts in a Bloomberg survey, with predictions ranging from 20 billion euros to 160 billion euros. Banks borrowed 98 billion euros in a similar operation in March, and have now taken 384 billion euros in total.

The Targeted Longer-Term Refinancing Operations were announced a year ago by ECB President Mario Draghi as part of a package to boost the economy and revive inflation. While they had little initial impact and are now being overshadowed by quantitative easing, the TLTROs still provide a signal of banks’ readiness to back the regional upswing with new loans.

“The healthy uptake at the ECB’s latest TLTRO adds to positive signs for the banking sector, but we doubt it will presage a sharp rise in lending,” said Jennifer McKeown, an economist at Capital Economics Ltd. in London.

Italian banks, which accounted for almost a third of the take-up in March, borrowed at least 10.6 billion euros this time. Intesa Sanpaolo SpA took 5 billion euros, Banco Popolare SC 3.2 billion euros, Credito Emiliano SpA and Banca Popolare di Milano Scarl about 1 billion euros each, and Mediobanca SpA 400 million euros, according to Intesa’s website and spokesmen for the other lenders.

Spanish Banks

Spain’s Bankia SA borrowed 4.5 billion euros, Banco Popular Espanol SA 3.85 billion euros, and Banco de Sabadell SA 3.5 billion euros, officials said. ING Groep NV of the Netherlands took 3 billion euros.

European bank stocks pared declines after the announcement. The Euro Stoxx Banks Index was down 0.5 percent at 12:27 p.m. Frankfurt time, after falling as much as 1.6 percent. The euro was up 0.5 percent at $1.1397.

TLTROs are directly tied to loan growth. While the terms of the early rounds of the program varied, under current operations banks can borrow as much as three times their net lending to companies and households, excluding mortgages, over a set period.

Since March, the ECB has offered the funds at the main refinancing rate of 0.05 percent, abolishing the premium of 10 basis points it charged in the first two rounds. The operations are quarterly, and all the loans mature in September 2018.

Liquidity Flood

Even so, the euro area is flooded with cash as the ECB spends 60 billion euros a month on asset purchases. Excess liquidity has jumped to 332 billion euros from as low as 71 billion euros in November. The overnight cost of interbank borrowing is minus 0.11 percent and the ECB’s deposit rate is minus 0.2 percent, meaning banks pay to hold surplus cash.

Moreover, while banks may be healthier after strengthening their balance sheets for an ECB assessment last year, the euro area’s credit revival remains fragile. Loans to the private sector were unchanged in April after growing 0.1 percent in March, the first expansion since 2012.

“Credit to the private sector is turning and will gradually recover,” Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam, said before the data.